2012 ANNUAL REPORT
C O N T E N T S Page NOTICE OF ANNUAL GENERAL MEETING 2-5 STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING 6 CORPORATE INFORMATION 7-8 CHAIRMAN'S STATEMENT 9 STATEMENT ON CORPORATE GOVERNANCE 10-16 STATEMENT OF INTERNAL CONTROL 17-18 AUDIT COMMITTEE REPORT 19-21 PROFILE OF DIRECTORS 22-25 DIRECTORS REPORT 26-28 STATEMENT BY DIRECTORS 29 STATUTORY DECLARATION 29 INDEPENDENT AUDITORS REPORT 30-31 STATEMENTS OF COMPREHENSIVE INCOME 32 STATEMENTS OF FINANCIAL POSITION 33 STATEMENTS OF CHANGES IN EQUITY 34-36 STATEMENTS OF CASH FLOWS 37-38 NOTES TO THE FINANCIAL STATEMENTS 39-78 FIVE YEARS COMPARATIVE FIGURES 79 STATEMENT OF SHAREHOLDINGS 80-81 SUBSTANTIAL SHAREHOLDERS 82 DIRECTORS SHAREHOLDINGS 82 LIST OF PROPERTIES 83 APPENDIX A FORM OF PROXY 1
NOTICE OF ANNUAL GENERAL MEETING NOTICE IS HEREBY GIVEN THAT the Fifty-Fourth Annual General Meeting of SUNGEI BAGAN RUBBER COMPANY (MALAYA) BERHAD will be held at Thistle Johor Bahru Hotel, Rafflesia, Jalan Sungai Chat, 80720 Johor Bahru, Johor, Malaysia on Tuesday, 20 November 2012 at 10.00 a.m. to transact the following businesses:- Agenda ORDINARY BUSINESS 1. To receive the Audited Financial Statements for the financial year ended 30 June 2012 together with the Directors and Auditors Reports thereon. 2. To approve the payment of a first and final dividend of 2% less 25% income tax for the financial year ended 30 June 2012. 3. To approve the payment of bonus dividend of 0.5% less 25% income tax for the financial year ended 30 June 2012. 4. To approve the payment of Directors Fees of up to the maximum amount of RM400,000 for the financial year ending 30 June 2013. REFER TO EXPLANATORY NOTE A RESOLUTION 1 RESOLUTION 2 RESOLUTION 3 5. To re-elect the following Directors who retire during the year in accordance with the Company s Article of Association and being eligible, offer themselves for re-election : a) Liew Chuan Hock - Article 84 b) William Wong Tien Leong - Article 90 RESOLUTION 4 RESOLUTION 5 6. To consider, and if thought fit, to pass the following resolution: THAT pursuant to Section 129(6) of the Companies Act, 1965, Lee Soo Hoon be and is hereby re-appointed as Director of the Company to hold office until the next Annual General Meeting. 7. To re-appoint Messrs Ernst & Young as Auditors of the Company and authorize the Directors to fix their remuneration. RESOLUTION 6 RESOLUTION 7 SPECIAL BUSINESS 8. To consider and, if thought fit, to pass the following Ordinary Resolutions: ORDINARY RESOLUTION 1 CONTINUATION OF TERMS OF OFFICE AS INDEPENDENT DIRECTOR THAT the terms of office of the following Directors be remained as Independent Director of the Company in accordance with the Malaysian Code on Corporate Governance 2012 : a) Huang Yuan Chiang b) Liew Chuan Hock c) Lee Soo Hoon REFER TO EXPLANATORY NOTE B RESOLUTION 8 RESOLUTION 9 RESOLUTION 10 2
ORDINARY RESOLUTION 2 AUTHORITY TO ALLOT SHARES - SECTION 132D THAT pursuant to Section 132D of the Companies Act, 1965 and subject to the approval of the relevant authorities, the Directors be and are hereby empowered to issue shares in the Company from time to time and upon such terms and conditions and for such purposes as the Directors may, in their absolute discretion, deem fit provided that the aggregate number of shares issued pursuant to this resolution does not exceed 10% of the issued share capital of the Company for the time being and that the Directors be and also empowered to obtain approval for the listing of and quotation for the additional shares so issued on the Bursa Malaysia Securities Berhad and that such authority shall continue in force until the conclusion of the next Annual General Meeting of the Company. ORDINARY RESOLUTION 3 PROPOSED RENEWAL OF SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE FOR SUNGEI BAGAN RUBBER COMPANY (MALAYA) BERHAD AND GROUP S DAY- TO-DAY OPERATIONS ENTERED INTO WITH KLUANG ESTATE (1977) SDN. BHD., PURSUANT TO PARAGRAPH 10.09 OF THE LISTING REQUIREMENTS OF THE BURSA MALAYSIA SECURITIES BERHAD THAT pursuant to Paragraph 10.09 of the Listing Requirements of the Bursa Malaysia Securities Berhad, the Company and/or its subsidiaries be and are hereby authorized to enter into and give effect to recurrent related party transactions of a revenue and trading nature with Kluang Estate (1977) Sdn. Bhd., as set out in section 2.1 of the Circular to Shareholders dated 30 October 2012 provided that such transactions are necessary for the day-to-day operations and undertaken in the ordinary course of business and at arm s length basis and on normal commercial terms which are not more favourable to the related party than those generally available to the public and not prejudicial to the shareholders of the Company AND THAT such approval, unless revoked or varied by the Company in general meeting, shall continue in force until:- RESOLUTION 11 RESOLUTION 12 (a) (b) (c) the conclusion of the next Annual General Meeting ( AGM ) of the Company following this AGM at which such mandate is passed, at which time it will lapse, unless by a resolution passed at such AGM whereby the authority is renewed; the expiration of the period within which the next AGM after that date it is required to be held pursuant to Section 143(1) of the Companies Act, 1965 ( Act ) (but must not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or revoked or varied by resolution passed by the shareholders in a general meeting; whichever is earlier. ORDINARY RESOLUTION 4 PROPOSED RENEWAL OF SHAREHOLDERS MANDATE FOR RECURRENT RELATED PARTY TRANSACTIONS OF A REVENUE OR TRADING NATURE FOR SUNGEI BAGAN RUBBER COMPANY (MALAYA) BERHAD AND GROUP S DAY- TO-DAY OPERATIONS ENTERED INTO WITH THE NYALAS RUBBER ESTATES LIMITED, PURSUANT TO PARAGRAPH 10.09 OF THE LISTING REQUIREMENTS OF THE BURSA MALAYSIA SECURITIES BERHAD THAT pursuant to Paragraph 10.09 of the Listing Requirements of the Bursa Malaysia Securities Berhad, the Company and/or its subsidiaries be and are hereby authorized to enter into and give effect to recurrent related party transactions of a revenue and trading nature with The Nyalas Rubber Estates Limited, as set out in section 2.1 of the Circular to Shareholders dated 30 October 2012 provided that such transactions are necessary for the day-to-day operations and undertaken in the ordinary course of business and at arm s length basis and on normal commercial terms which are not more favourable to the related party than those generally available to the public and not prejudicial to the shareholders of the Company AND THAT such approval, unless revoked or varied by the Company in general meeting, shall continue in force until:- RESOLUTION 13 (a) the conclusion of the next Annual General Meeting ( AGM ) of the Company following this AGM at which such mandate is passed, at which time it will lapse, unless by a resolution passed at such AGM whereby the authority is renewed; 3
(b) the expiration of the period within which the next AGM after that date it is required to be held pursuant to Section 143(1) of the Companies Act, 1965 ( Act ) (but must not extend to such extension as may be allowed pursuant to Section 143(2) of the Act); or (c) revoked or varied by resolution passed by the shareholders in a general meeting; whichever is earlier. SPECIAL RESOLUTION AMENDMENTS TO ARTICLES OF ASSOCIATION THAT the proposed alterations, modifications, amendments or deletions to the Articles of Association of the Company as contained in Appendix A be hereby approved. RESOLUTION 14 9. To transact any other business of which due notice has been given. NOTICE OF DIVIDEND ENTITLEMENT FIRST AND FINAL DIVIDEND OF 2% LESS 25% INCOME TAX AND A BONUS DIVIDEND OF 0.5 % LESS 25% INCOME TAX NOTICE IS HEREBY GIVEN THAT subject to the approval of the shareholders at the Fifty-Fourth Annual General Meeting, a first and final dividend of 2% less 25% income tax and a bonus dividend of 0.5% less 25% income tax in respect of the financial year ended 30 June 2012 will be payable on 20 December 2012 to Depositors registered in the Record of Depositors at the close of business on 7 December 2012. A Depositor shall qualify for entitlement only in respect of:- a) Securities deposited into the Depositor s Securities Account before 12.30 p.m. on 5 December 2012 in respect of shares which are exempted from mandatory deposits; b) Securities transferred into the Depositor s Securities Account before 4.00 p.m. on 7 December 2012 in respect of transfers; and c) Securities bought on the Bursa Malaysia Securities Berhad on a cum entitlement basis according to the Rules of the Bursa Malaysia Securities Berhad. BY ORDER OF THE BOARD CHIN NGEOK MUI (MAICSA NO. 7003178) LEONG SIEW FOONG (MAICSA NO. 7007572) Company Secretaries Johor Bahru 30 October 2012 4
Notes : a. A member of the Company entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy may but need not be a member of the Company and if he is not a Member of the Company, Section 149 of the Companies Act, 1965 shall not be applicable. b. A member shall be entitled to appoint more than one proxy (subject always to a maximum of two (2) proxies at each meeting) to attend and vote at the same meeting. c. Where a member appoints more than one (1) proxy (subject always to a maximum of two (2) proxies at each meeting) the appointment shall be invalid unless he specifies the proportions of his holdings to be presented by each proxy. d. The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing or if such appointer is a corporation under its common seal or the hand of its officer or attorney. e. The instrument appointing the proxy must be deposited at the Company s Registered Office situated at Suite 6.1A, Level 6, Menara Pelangi, Jalan Kuning, Taman Pelangi, 80400 Johor Bahru, Johor, Malaysia not less than forty-eight hours before the time appointed for holding the Meeting and any adjournment thereof. EXPLANATORY NOTES ON ORDINARY BUSINESS: Note A This Agenda item is meant for discussion only as the provision of Section 169(1) of the Companies Act, 1965 does not require a formal approval of the shareholders and hence is not put forward for voting. Note B Mr Huang Yuan Chiang, Mr Liew Chuan Hock and Mr Lee Soo Hoon are Independent Directors of the Company who have served the Company for more than nine years. In line with the Malaysian Code on Corporate Governance 2012, the Nomination Committee has assessed the independence of the above three (3) Independent Directors pursuant to the Main Market Listing Requirements and their independence have not been compromised all these while. In fact, they have been bringing their independent and objective judgment to the board deliberations and decision making process. To that, the Board recommends Mr Huang Yuan Chiang, Mr Liew Chuan Hock and Mr Lee Soo Hoon to continue their office as Independent Directors. EXPLANATORY NOTES ON SPECIAL BUSINESS: (i) Ordinary Resolution 1 The Ordinary Resolution 1, if passed, is primarily to give flexibility to the Board of Directors to issue and allot shares at any time in their absolute discretion without convening a general meeting. This is a renewal of a general mandate. The Company did not utilize the mandate granted in the preceding year s Annual General Meeting. This authority will, unless revoked or varied by the Company in general meeting, will expire at the next Annual General Meeting. The authority will provide flexibility to the Company for allotment of shares for any possible fund raising activities, including but not limiting to further placing of shares, for the purpose of funding future investment(s), acquisition(s) and/or working capital. (ii) Ordinary Resolutions 3 and 4 Please refer to the Circular to Shareholders dated 30 October 2012. (iii) Special Resolution This Resolution is to amend the Company s Articles of Association in line with the amendments in the Main Market Listing Requirements of Bursa Malaysia Securities Berhad. 5
STATEMENT ACCOMPANYING NOTICE OF ANNUAL GENERAL MEETING Pursuant to Paragraph 8.27(2) of the Bursa Malaysia Securities Berhad s Listing Requirements, appended hereunder is : DETAILS OF INDIVIDUAL WHO IS STANDING FOR ELECTION AS DIRECTOR WILLIAM WONG TIEN LEONG, Singapore citizen, aged 53, is an INDEPENDENT NON-EXECUTIVE DIRECTOR of the Company. He became a member of the Board Directors on 7 December 2012. Mr Wong has Bachelor of Laws (LLB) National University of Singapore. a) Partner of Francis Khoo & Lim b) Independent Director of a Singapore Public-Listed Company He does not have any directorship in other public company, family relationship with any directors and/or major shareholder of the Company and has no conflict of interest with the Company. He does not have any securities holdings in the Company and subsidiaries. He has not been convicted of any offences within the past ten years other than traffic offences. 6
CORPORATE INFORMATION DIRECTORS LEE SOO HOON LEE CHUNG-SHIH LIEW CHUAN HOCK HUANG YUAN CHIANG WILLIAM WONG TIEN LEONG SECRETARIES CHIN NGEOK MUI LEONG SIEW FOONG AUDIT COMMITTEE MEMBERS LEE SOO HOON Chairman Independent Non-Executive Director LIEW CHUAN HOCK Independent Non-Executive Director HUANG YUAN CHIANG Independent Non-Executive Director WILLIAM WONG TIEN LEONG Independent Non-Executive Director NOMINATION COMMITTEE MEMBERS HUANG YUAN CHIANG Chairman Independent Non-Executive Director LEE SOO HOON Independent Non-Executive Director LIEW CHUAN HOCK Independent Non-Executive Director WILLIAM WONG TIEN LEONG Independent Non-Executive Director REMUNERATION COMMITTEE MEMBERS LIEW CHUAN HOCK Chairman Independent Non-Executive Director LEE SOO HOON Independent Non-Executive Director HUANG YUAN CHIANG Independent Non-Executive Director WILLIAM WONG TIEN LEONG Independent Non-Executive Director 7
INVESTMENT COMMITTEE MEMBERS HUANG YUAN CHIANG Chairman Independent Non-Executive Director LIEW CHUAN HOCK Independent Non-Executive Director WILLIAM WONG TIEN LEONG Independent Non-Executive Director AUDITORS ERNST & YOUNG Chartered Accountants REGISTERED OFFICE SUITE 6.1A, LEVEL 6, MENARA PELANGI, JALAN KUNING, TAMAN PELANGI, 80400 JOHOR BAHRU, JOHOR TEL: 07-3323536 FAX: 07-3324536 SHARE REGISTRAR SYMPHONY SHARE REGISTRARS SDN BHD (Company No. 378993-D) LEVEL 6, SYMPHONY HOUSE, PUSAT DAGANGAN DANA 1, JALAN PJU 1A/46, 47301 PETALING JAYA, SELANGOR. TEL: 603-78418000 FAX: 603-78418151 BANKER OCBC BANK (MALAYSIA) BERHAD STOCK EXCHANGE MAIN MARKET OF BURSA MALAYSIA SECURITIES BERHAD ( Bursa Malaysia ) WEBSITE www.sungeibagan.com 8
CHAIRMAN'S STATEMENT On behalf of the Board of Directors, I have pleasure in presenting to you the Annual Report of the Group and the Company for the financial year ended 30 June 2012. Overview The Group achieved total revenue of RM12,264,802 for the current financial year ended 30 June 2012. This was lower than RM13,487,676 achieved a year ago by 9%, mainly due to lower crop sales and dividend income partially offset by higher interest income. Crop sales from the Estate Operations were lower on account of the 9% decrease in Fresh Fruit Bunches ( FFB ) prices and 5% decrease in fresh fruit bunches production, the latter mainly due to shortage of labours. The Group ended the current financial year by posting an after-tax profit of RM6,599,464. This was lower than last financial year s RM19,140,856 despite the gain of RM3,337,634 arising from the Government compulsory acquisition of 25 hectares of the plantation land. The after-tax profit was also affected by:- 1. Higher operating expenses for the current financial year. 2. Current financial year s exchange difference was a loss of RM2,201,523 while last year was a gain of RM10,290,898. 3. The fair value gain of RM2,403,136 arising from the revaluation of its investment property was lower than last year s RM5,130,716. 4. Share of associate s financial results for the current year was a loss of RM1,361,731 which was higher than last year s share of loss by RM86,787. Prospects With the recruitment of additional employees, better harvests are expected for the next financial year, subject to good weather conditions. The results of the associated companies may be further affected by the market valuation of their investments and currency fluctuations. Dividend The Board is proposing a first and final dividend of 2% less 25% income tax and a bonus dividend of 0.5% less 25% income tax for the year ended 30 June 2012. These are subject to the approval of shareholders at the forthcoming Annual General Meeting. Acknowledgement On behalf of the Board of Directors, I would like to take this opportunity to thank all the Directors, the management and staff at all levels for their continuing efforts and immense contributions during the year. We also wish to thank our customers, suppliers and valued shareholders for their unwavering and continuous support. On behalf of the Board of Directors LEE SOO HOON Chairman 9
STATEMENT OF CORPORATE GOVERNANCE THE CODE OF CORPORATE GOVERNANCE The Malaysian Code of Corporate Governance (the Code) sets out the principles of Corporate Governance which essentially relate to the boards practices and procedures involving composition of the board, appointments, directors remuneration, accountability, shareholders, employees, etc. The Board of Directors of Sungei Bagan Rubber Company (Malaya) Berhad ( the Company ) recognizes the importance of good corporate governance and continues to be committed to ensure that high standards of corporate governance are practiced throughout the Company and its subsidiaries ( the Group ). This Statement is produced by the Board pursuant to paragraph 15.25 of the Bursa Malaysia s Main Market Listing Requirements. Its purpose is to show how the Board has applied the principles set out in Part I and the extent to which it has complied with the best practices set out in Part II and where it has not complied with them, it has stated the reasons for the non-compliance. The only area of non-compliance with the Code is the disclosure of details of the remuneration of each director. Details of the Directors' remuneration are set out in Note 7 to the financial statements by applicable bands of RM50,000, which complies with the disclosure requirements under the Bursa Malaysia's Listing Requirements. The Board is of the view that the transparency and accountability aspects of corporate governance as applicable to Directors' remuneration are appropriately served by the band disclosure made. DIRECTORS The Board The Board's responsibilities are for setting the strategic direction of the Group, establishing goals for the management and continuously improving its performance so as to protect and enhance shareholders' value in the Group. They are hence responsible for the overall standards of conduct, risk management, succession planning, strategic planning as well as the system of internal controls within the Group. Board Composition and Balance The Board comprises five (5) members; of whom four (4) are Independent Non-Executive Directors and one (1) is Non-Independent Non-Executive Director. The Board's composition complies with the Listing Requirements of Bursa Malaysia that requires a minimum of 2 or 1/3 of the Board to be Independent Directors. A brief profile of each Director is presented on pages 22 to 25 of the Annual Report. The Board has a good balance of members such that no one individual or a small group of individuals can dominate the Board's decision-making process. With their different backgrounds and specialization, the Directors bring along a wide range of experience, expertise and perspective in discharging their responsibilities and duties in managing the business affairs of the Group. Board Meetings Board meetings are scheduled for every quarter with additional meetings to be convened as and when required. During the financial year under review, the Board met a total of five (5) times. The attendance record of each Director since the last financial year is as follows. Name of Directors Attendance of meetings Lee Soo Hoon 5/5 Lee Chung-Shih 5/5 Liew Chuan Hock 5/5 Huang Yuan Chiang 4/5 William Wong Tien Leong * 2/2 Note:- * Appointed as Director on 7 December 2011. ^ Redesignated as Non-Independent Non-Executive Director and resigned as Investment Committee Member on 2 October 2012. 10
Supply of Information Prior to each Board meeting, all Directors will receive a full set of Board papers with due notice of issues to be discussed, in a timely manner. Relevant Directors will provide explanation to pertinent issues when necessary. Company Secretary attends all board meetings whereby all proceedings and conclusions from the Board Meetings are minuted and signed by the Chairman in accordance with the provision of Section 156 of the Companies Act, 1965. All Directors have unrestricted access to all information and the advice as well as services of the Company Secretaries and external auditors whether as a full Board or in their individual capacity, in the furtherance of their duties. They may obtain independent professional advice at their discretion at the Company's expense. Appointment to the Board The Company has a transparent and formal procedure for the appointment of new Directors to the Board. The Nomination Committee of the Company comprises four (4) Independent Non-Executive Directors. The Nomination Committee is responsible for making recommendations for any appointments to the Board. In making these recommendations, the Nomination Committee considers the required mix of skills and experience and other qualities, including core competencies which the Directors should bring to the Board. Any new nomination received is put to the full Board for assessment and endorsement. The Board, through the Nomination Committee annually reviews its required mix of skills and experience and other qualities, including core competencies which Non-Executive Directors bring to the Board. The Board has implemented a process, to be carried out by the Nomination Committee annually, for assessing the effectiveness of the Board as a whole, the Committees of the Board, and for assessing the contribution of each individual member of the Board. All assessments and evaluations carried out by the Nomination Committee in the discharge of all its functions are properly documented. Re-election In accordance with the Company's Articles of Association, the newly appointed Directors will retire at the first Annual General Meeting ("AGM") and are eligible for re-election by shareholders. The Articles also provide that at least one third of the Board including Executive Directors is subject to re-election annually and each Director shall stand for re-election at least once every 3 (three) years. Directors Training All Directors have completed the Mandatory Accreditation Programme and Continuing Education Programme prescribed by Bursa Malaysia. Training needs as deemed appropriate by individual Board members are provided. Board members keep abreast with general economic, industry and technical developments by their attendances at various appropriate conferences, seminars and briefings. During the financial year, the Directors have attended the relevant following training programmes to keep themselves abreast with relevant changes whilst discharging their duties: - Date Seminar/Workshop Conducted by Attended by 20 September 2011 Seminar on Audit Committee s Ernst & Young All Directors Expanded Governance Oversight Role 30-31 January 2012 Mandatory Accreditation Programme for Bursatra Sdn Bhd William Wong Tien Leong Directors of Public Listed Companies 11
DIRECTORS REMUNERATION The Remuneration Committee, consisting of four (4) Independent Non-Executive Directors, ascertains and recommends the remuneration packages of Executive Directors to the Board for its approval. Fees for Directors are determined by the full Board with the approval from shareholders at the AGM. Details of the remuneration of each Director for the financial year are as follows: (i) Aggregate remuneration of Directors categorised into appropriate components. Salaries and Allowances Fees Total RM RM RM Executive Directors 253,887 49,460 303,347 Non-Executive Directors - 264,144 264,144 Total 253,887 313,604 567,491 The fees paid to all Directors were approved in advance by the shareholders at the Annual General Meeting. (ii) Number of Directors whose remuneration falls into the following band: Number of Directors Range of remuneration Executive Non-Executive Below RM50,000-2 RM50,00I to RM100,000-3 RM100,001 to RM150.000 1 - RM150,001 to RM200,000 1 - Note: The remuneration above included the remuneration of the retired Director, Cecil V R Wong who retired on 24 November 2011; and Edwards John Richard who was appointed as Director on 7 December 2011, and resigned on 17 October 2012. SHAREHOLDERS COMMUNICATION AND INVESTORS RELATIONS POLICY Dialogue Between the Company and Investors The Board recognizes the importance of accurate and timely dissemination of information to shareholders on all material business affecting the Group. The Company makes quarterly announcements of the financial results of the Company and the Group within the time frame prescribed in the Listing Requirements of Bursa Malaysia, accompanied by a balanced and comprehensive assessment of the performance and position of the Company and the Group. The Company's Annual Report, containing the Financial Statements of the Company and the Group for the financial year, also contains other pertinent information and disclosures to enable shareholders and investors to have a better understanding of the Group's business and performance. Annual General Meeting The AGM is the principal forum of dialogue with shareholders. Shareholders are notified of the meeting and provided with a copy of the Notice of the AGM and the Company's Annual Report at least 21 days before the date of the meeting. Shareholders are encouraged to attend and participate in the AGM. Besides the normal agenda for the AGM, shareholders are given the opportunities to seek clarification on any matters pertaining to the Group s affairs and performance as the Directors and the representatives of the external auditors are present to answer any questions that they may have. 12
ACCOUNTABILITY AND AUDIT Directors Responsibility for Preparing the Annual Audited Financial Statements The Directors are required by the Companies Act, 1965 ("the Act") to prepare financial statements for each financial year which have been made out in accordance with the applicable approved accounting standards and the provisions of the Act. The Board of Directors is responsible for taking reasonable steps to ensure that the financial statements give a true and fair view of the state of affairs of the Group and the Company, and of their results and cash flows for the financial year under review. In preparing the financial statements of the Group and the Company for the year ended 30 June 2012, the Board of Directors has adopted and applied appropriate accounting policies on a consistent basis, made judgements and estimates where applicable that are reasonable and prudent and ensured that applicable accounting standards have been followed. The Directors have ensured that the Group and Company keep proper accounting and other records that will disclose with reasonable accuracy at any time the financial position of the Group and the Company, and which enable them to ensure that the financial statements comply with the Act and the applicable approved accounting standards. Financial Reporting In presenting the annual financial statements and quarterly financial results announcements to shareholders, the Board aims to present a balanced and fair assessment of the Group's financial position and prospects and ensures that the financial results are released to Bursa Malaysia well within the stipulated time frame and the financial statements comply with regulatory reporting requirements. In this regard, the Board is assisted by the Audit Committee. The Audit Committee assists the Board in its responsibility to oversee and scrutinise the financial reporting and the effectiveness of the internal control of the Group. The Audit Committee comprises four (4) Directors, all of whom are Independent Non-Executive. The term of references and activities of the Audit Committee are detailed in the Audit Committee Report of pages 19 to 21 of this Annual Report. Internal Control The Directors acknowledge their responsibility to maintain a sound system of internal controls to safeguard the shareholders' investment and the Group's assets. The Board also recognises its overall responsibility for continuous reviewing and maintenance of the system of internal controls of the Group with the assistance of the outsourced internal auditors. The external auditors are appointed by the Board to review the Statement of Internal Control and to report thereon. The Statement of Internal Control in this Annual Report herein details the state of internal controls within the Company. Relationship with Auditors The Board of Directors has established a formal and transparent arrangement with the external auditors of the Company through the Audit Committee. The Audit Committee communicated directly and independently with the auditors quarterly where necessary and without the presence of the Management twice a year. The role of the Audit Committee in relation to the external auditors is stated on pages 19 to 21. 13
CORPORATE SOCIAL RESPONSIBILITY ( CSR ) The Group is committed to Corporate Social Responsibility ( CSR ) by integrating it into the way the business is run. The Group continues to focus on safety and health of our employees and workers by conducting regular trainings and briefings on safety and health. Recreational activities were organised for the employees and community. The Group was one of the sponsors for a primary school s annual sports activity. The Group also provides its employees and families in our estates with quality facilities and amenities to live and work comfortably. Small plots of land were allocated for employees and workers to do vegetable and fruit tree farming. The Group makes donation regularly to victims of natural disasters such as flood during monsoon season. The Group is aware of the importance of conserving and preserving our natural environment. To minimise chemical sprayings, turnera sabulata are planted to prevent predators of bagworms which eat plants and tree leaves. Mucuna brateata plants are used as cover crops preventing soil erosion, conserving moisture, reducing weed growth and the slow decomposition of these plants will increases the fertility of surface soil. ADDITIONAL COMPLIANCE INFORMATION Disclosure of recurrent related party transactions (RRPT) The details of the shareholders' mandate are reflected in the Circular to Shareholders dated 30 October 2012. Utilization of Proceeds There were no issuance of new shares and rights issue carried out during the financial year ended 30 June 2012 to raise any cash proceeds. Share Buy-Backs There was no share buy-back by the Company during the financial year under review. Exercise of Options, Warrants or Convertible Securities There were no other options, warrants or convertible securities exercised in respect of the financial year ended 30 June 2012. Depository Receipt Programme The Company and its subsidiaries did not sponsor any Depository Receipt Programmes for the financial year ended 30 June 2012. Sanctions and/or Penalties The Company and its subsidiaries, Directors and management have not been imposed with any sanctions and/or penalties during the financial year. Non-Audit Fees The amount of non-audit fees for services provided by the external auditors to the Company and its subsidiaries for the financial year amounted to RM41,000. 14
Variation in Results There is no material variance between the results for the financial year ended 30 June 2012 and the unaudited results previously announced by the Company. Profit Guarantee, Profit Estimate, Forecast or Projection During the financial year, there was no Profit Guarantee, Profit Estimate, Forecast or Projection given by the Group. Material Contracts None of the Directors and major shareholders has any material contract with the Company and/or its subsidiaries either still subsisting at the end of the financial year ended 30 June 2012 or entered into since the end of that financial year. Contracts Relating to Loan There were no contracts relating to loan by the Company and its subsidiaries during the financial year. 15
BOARD COMMITEES To assist the Board in fulfilling its roles, the Company has formed four (4) committees, namely Audit Committee, Nomination Committee, Remuneration Committee and Investment Committee to support and assist in discharging its fiduciary duties and responsibilities. The respective functions and terms of reference of the Board committees as well as authority delegated to these Board committees have been defined by the Board. The Committees report and make recommendations to the Board on matters delegated to them for deliberation. The ultimate responsibility for the final decisions on all matters lies with the Board. Audit Committee Details of Audit Committee is presented on pages 19 to 21. Nomination Committee The Nomination Committee met one (1) time for the financial year ended 30 June 2012. All members attended the meetings. The salient responsibilities of the Nomination Committee are as follows: (a) Examine the size of the Board with a view to determine the number of Directors on the Board in relation to its effectiveness. (b) Recommend suitable orientation, educational and training programmes to continuously train and equip the existing and new Directors. (c) Assess annually the effectiveness of the Board as a whole, the committee of the Board and the contribution of each individual Director based on the process implemented by the Board. (d) Assess and recommend to the Board, the re-election by rotation or re-appointment of Directors in accordance with the Company's Articles of Association or other prevailing law. The Nomination Committee carries out all assessments and evaluations required and these are properly documented. Remuneration Committee The Remuneration Committee met two (2) times during the financial year ended 30 June 2012. All members attended the meetings. The salient responsibilities of Remuneration Committee are as follows: (a) Review and recommend to the Board the remuneration of the Executive and Non-Executive Directors, and key senior management. (b) Assist the Board in assessing the responsibility and commitment undertaken by the Board membership. (c) Assist the Board in ensuring the remuneration of the Directors reflects the responsibility and commitment of the Director concerned. Investment Committee The Investment Committee consisting of three (3) Independent Non-Executive Directors, met two (2) times during the financial year ended 30 June 2012. All members attended the meetings. Amongst the salient responsibilities of Investment Committee, Investment Committee shall review any investment of the Group, policies and guidelines governing the Group's investment portfolio and monitor compliance with the policies. 16
STATEMENT ON INTERNAL CONTROL Introduction The Board of Directors is pleased to present the Statement on Internal Control pursuant to Paragraph 15.26 (b) of the Bursa Malaysia Securities Berhad ("Bursa Malaysia") Listing Requirements, which outlines the Group's key elements of internal control system for the financial year ended 30 June 2012. Board Responsibility The Board acknowledges its responsibility in maintaining a sound system of internal controls and risk management practices to safeguard shareholders' investment and the Group's assets, and for reviewing the adequacy and integrity of the system. However, the Board recognizes that reviewing of the Group's system of internal controls is a concerted and on-going process whereby such system is designed to manage rather than eliminate the risk of failure to achieve the Group's business objectives. In pursuing these objectives, the system of internal controls can only provide reasonable and not absolute assurance against any material misstatement or loss. Risk Management Framework The Board regards risk management as an integral part of the business operations. The Board confirms that there is a continuous process for identifying, evaluating, monitoring and managing the significant risks affecting the achievement of the Group's business objectives on an informal basis via its Board and Audit Committee meetings with the assistance of the outsourced Internal Auditors. No major internal controls weaknesses were identified during the financial year under review that requires disclosure in the Group's Annual Report. Internal Audit The Audit Committee with the assistance of the outsourced Internal Auditors annually reviews the Group's system of internal controls to address the related internal control weaknesses. The Internal Audit team independently reviews the risk identification procedures and control processes implemented by the management. Any significant weaknesses identified during the reviews together with the improvement measures to strengthen the internal controls were reported to the Audit Committee. Other Key Elements of Internal Control Other key elements of the system of internal control of the Group are as follows:- The Group has an appropriate organizational structure, which enables adequate monitoring of the activities and ensures effective flow of information across the Group. Responsibilities are clearly defined and delegated to the committees of the Board. Key processes of the Group are governed by written policies and procedures. The estate prepares budgets for the coming year which are approved by the Board. Information covering the financial performance against the budget of the estate is provided to the Board on quarterly basis together with key operational performance indicators. Quarterly and annual financial statements with detailed analysis of financial results are reviewed by the Audit Committee who then recommended to the Board for approval prior to submission to Bursa Malaysia. The Investment Committee was set up to oversee the Group's investment transactions, management, policies and guidelines, including review of investment manager selection, establishment of investment benchmarks, review of investment performance and oversight of investment risk management exposure policies and guidelines. The Investment Committee ultimately reports the overall investment results to the Board. 17
Board s Conclusion Overall, the Board is satisfied that the process of identifying, evaluating and managing significant risks that may affect achievement of the Group's business objectives is in place to provide reasonable assurance. The Group will strive to ensure that the system of internal controls will be continuously enhanced and will seek regular assurance on the effectiveness and soundness of the internal control systems through appraisals by the internal as well as external auditors. In consideration of the Internal Auditors' report, the Board is pleased to report that there were no significant internal control deficiencies for areas that have been reviewed. In addition, in accordance with the paragraph 15.23 of the Listing Requirements of Bursa Malaysia, the external auditors have reviewed this Statement of Internal Control and reported that nothing has come to their attention that causes them to believe that the contents of this Statement is inconsistent with their understanding of the actual processes carried out in the Group. 18
AUDIT COMMITTEE REPORT MEMBERS Chairman Lee Soo Hoon Members Liew Chuan Hock Huang Yuan Chiang William Wong Tien Leong Functions The functions of the Audit Committee shall be: (a) To review and report the following to the Board of Directors - (i) (ii) (iii) (iv) (v) with the external auditors, the audit plan; with the external auditors, their evaluation of the system of internal controls; with the external auditors, their audit report and management letter (if any); the assistance given by the Company s officers to the external auditors; the quarterly results and the year end financial statements, prior to the approval by the Board of Directors, focusing particularly on: changes in or implementation of major accounting policy changes; significant and unusual events; and compliance with accounting standards and other legal requirements; (vi) (vii) information covering the financial performance against the budget of the estate on quarterly basis together with key operational performance indicators; any related party transactions and conflict of interest situation that may arise within the Company or Group including any transaction, procedure or course of conduct that raises questions of management integrity; (viii) to consider the nomination, appointment and re-appointment of external auditors; their audit fees; and any questions on resignation, suitability and dismissal. (b) To do the following, in relation to the internal audit function:- review the adequacy of the scope, functions, competency and resources of the internal audit function, and that it has the necessary authority to carry out its work; review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit function; review any appraisal or assessment of the performance of members of the internal audit function; approve any appointment or termination of senior staff members of the internal audit function; and take cognizance of resignations of internal audit staff members and provide the resigning staff member an opportunity to submit his reasons for resigning. 19
(c) To carry out other function that may be mutually agreed upon by the Committee and the Board that would be beneficial to the Group and ensure the effective discharge of the Group s duties and responsibilities. (d) To verify the criteria for allocation of options pursuant to a share scheme for employee. ATTENDANCE AT MEETINGS DURING THE FINANCIAL YEAR The Committee met with External Auditor twice during the year without the presence of the Executive Directors. The Chairman engages on a continuous basis with senior management of the Company on all matters affecting the Company. The Audit Committee held a total of five (5) meetings during the financial year ended 30 June 2012. Details of attendance of the Committee members were as follows: Name of Audit Committee Members Attendance of Meetings Lee Soo Hoon 5/5 Liew Chuan Hock 5/5 Huang Yuan Chiang 4/5 William Wong Tien Leong *^ 1/1 Note:- * Appointed as Director on 7 December 2011. ^ Appointed as Audit Committee Member on 29 February 2012. The details of training attended by the Audit Committee who are also the Board members are set out on page 11 of the Annual Report. SUMMARY OF ACTIVITIES DURING THE FINANCIAL YEAR During the financial year ended 30 June 2012, the main activities carried out by the Committee were as follows: 1. Reviewed and discussed the unaudited quarterly financial reports of the Group prior to presentation to the Board of Directors for approval and subsequent announcements. 2. Reviewed the external auditors scope of work and their audit plan and discussed results of their examination and recommendations. 3. Reviewed with the external auditors the audited financial statements for the financial year ended 30 June 2012, the results of the audit, audit report and recommendation prior to the approval of the Board and subsequent announcements. 4. Reviewed and discussed the new developments on accounting standards issued by the Malaysian Accounting Standards Board and its adoption and impact to the Group s and Company s financial statements. 5. Reviewed the internal audit plan and programme for the financial year under review. 6. Reviewed the reports prepared by the outsourced internal auditors on the state of internal controls of the Group. 7. Reviewed the related party transactions and conflict of interest situations that arose within the Group for compliance with the Listing Requirements of Bursa Malaysia. 8. Reviewed the extent of the Group s compliance with the relevant provisions set out under the Malaysian Code on Corporate Governance 2012 for the purpose of preparing the Corporate Governance Statement and Statement on Internal Control pursuant to the Listing Requirements of Bursa Securities. 20
9. Reviewed the information covering the financial performance against the budget of the estate together with key operational performance indicators on quarterly basis. 10. Reviewed the proposed audit fees for the external auditors in respect of their audit of the Group. 11. Considered the re-appointment of the external auditors and the outsourced internal auditors. Internal Audit Function The Committee is aware of the fact that an independent and adequately resourced internal audit function is essential to assist in obtaining the assurance it requires regarding the effectiveness of the system of internal control. The main role of the internal audit function is to review the effectiveness of the system of internal control and this is performed with impartiality, proficiency and due professional care. An independent professional firm has been engaged to handle this function and would report directly to the Audit Committee. Their report has been received by the Committee, discussed and recommendations implemented, where necessary and appropriate, to tighten the Company s internal control procedures. The internal audit fee for services provided by the outsourced internal auditors for the financial year amounted to RM9,000. 21
LEE SOO HOON PROFILE OF DIRECTORS Position Independent Non-Executive Chairman Age 70 Nationality Malaysian Work Experience/Occupation a) Partner of Ernst & Young, Singapore (1978-1997) b) Independent Director of Singapore Public Companies c) Provides management and financial consultancy services Qualification/Professional body a) F.C.A. Institute of Chartered Accountants in England and Wales b) Member of Singapore Institute of Certified Public Accountants c) Member of Malaysian Institute of Certified Public Accountants d) Member of Malaysian Institute of Accountants e) Member of Singapore Institute of Directors Date of Appointment 19 October 2001 Details of any board committee to which Director belongs Directorship in other listed companies Securities holding in the Company (as at 30 June 2012) Relationship with other Directors and/or substantial shareholders Conflict of interest with the Company a) Chairman of Audit Committee b) Member of Remuneration Committee c) Member of Nomination Committee a) IPC Corporation Ltd b) CSE Global Ltd c) Transview Holdings Ltd d) Kuchai Development Berhad e) Kluang Rubber Company (Malaya) Berhad f) G.K. Goh Holdings Ltd g) Heatec Jietong Holdings Ltd h) LMIRT Management Ltd Nil No family relationship with other Directors and/or substantial shareholders of the Company Nil LEE CHUNG-SHIH Position Non-Independent Non-Executive Director Age 50 Nationality Work Experience/Occupation Qualification/Professional body Singaporean a) Executive Director, Public Unlisted Real Estate Investment Company b) Director, Public Unlisted Licenced Trust Company B. Sc., International Business 22
Date of Appointment 19 February 1990 Details of any board committee to which Director belongs Directorship in other listed companies Securities holding in the Company (as at 30 June 2012) Relationship with other Directors and/or substantial shareholders Conflict of interest with the Company Nil a) Kuchai Development Berhad b) Kluang Rubber Company (Malaya) Berhad Direct interest of 32,000 shares and deemed interest of 35,170,752 shares in the Company equivalent to 0.05% and 58.14% respectively Son of Lee Thor Seng and brother of Lee Yung-Shih Nil LIEW CHUAN HOCK Position Independent Non-Executive Director Age 51 Nationality Work Experience/Occupation Qualification/Professional body Malaysian a) Vice President Institutional Sales, HwangDBS Investment Bank Berhad. Holds dealers representative licence b) Executive Director, Britac Bhd c) Head of Institutional Sales, Sime Securities Sdn Bhd d) Head of Institutional Sales, HLG Securities Bhd a) Masters in Business Administration, University of Manchester b) B.Sc. (Eng.) Hons. Date of Appointment 18 November 2002 Details of any board committee to which Director belongs Directorship in other listed companies Securities holding in the Company (as at 30 June 2012) Relationship with other Directors and/or substantial shareholders Conflict of interest with the Company a) Chairman of Remuneration Committee b) Member of Audit Committee c) Member of Nomination Committee d) Member of Investment Committee a) Kuchai Development Berhad b) Kluang Rubber Company (Malaya) Berhad Nil No family relationship with other Directors and/or substantial shareholders of the Company Nil 23
HUANG YUAN CHIANG Position Independent Non-Executive Director Age 53 Nationality Work Experience/Occupation Qualification/Professional body Malaysian Mr Huang is a lawyer by training and an investment banker by vocation. His career in investment banking spanned 12 years and he has held senior management positions with various international banks including Standard Chartered Bank, HSBC, Bankers Trust and Deutsche Bank. His last position at Bankers Trust was Managing Director, overseeing the Mergers & Acquisitions Division of Bankers Trust for Singapore, Malaysia, Thailand, Indonesia, Philippines and India. a) Bachelor of Laws (LL.B) Monash University b) Bachelor of Economics (B.Ec) Monash University Date of Appointment 18 November 2003 Details of any board committee to which Director belongs Directorship in other listed companies Securities holding in the Company (as at 30 June 2012) Relationship with other Directors and/or substantial shareholders Conflict of interest with the Company a) Chairman of Nomination Committee b) Chairman of Investment Committee c) Member of Audit Committee d) Member of Remuneration Committee a) Kuchai Development Berhad b) Kluang Rubber Company (Malaya) Berhad c) MTQ Corporation Limited d) Mercator Lines (Singapore) Limited Nil No family relationship with other Directors and/or substantial shareholders of the Company Nil WILLIAM WONG TIEN LEONG Position Independent Non-Executive Director Age 53 Nationality Work Experience/Occupation Qualification/Professional body Singaporean a) Partner of Francis Khoo & Lim b) Independent Director of a Singapore Public-Listed Company Bachelor of Laws (LLB) National University of Singapore Date of Appointment 7 December 2011 24